Unraveling the Mystery of the Malaise in Montana’s Economy

There was a $224 million shortfall in the Montana budget in 2017, enough to force a special session of the legislature, but where did all the tax monies go to bring the problem about?

Director of the University of Montana Bureau of Business and Economic Research, Patrick Barkey, said the ‘malaise’ in the economy wasn’t difficult to track down.

“We’re trying to unravel the mystery of why, despite the fact that Montana keeps adding more jobs, unemployment rates are low, and there are signs of a lot of economic activity, why was it that state tax collections were in such rough shape that we had to have a special session of the legislature in November to try to plug some of the holes,” Barkey said. “It really comes back to the economy and how it’s behaving. It’s really about how much money people are making, which is ultimately our tax base.”

Barkey said the big picture makes the facts crystal clear.

“If you look at the income of Montanans which comprises well over half of our revenues, it’s really not behaving all that well,” he said. “There’s some growth, but fairly weak growth, so the mystery of tax collections is rather easily solved by looking at that.”

Barkey said that opens another question, why is income growth so weak?

“The wage earner in Montana is actually doing fairly well, and the income tax data reflect that,” he said. “The growth in withholding has held up quite strongly. What the big source of weakness is has been what’s called business proprietor income. That’s the income of partnerships, employee owned businesses, the types of non-corporate businesses which dominate Montana’s economy. Those folks are not doing very well. Part of it is agriculture, part of it is energy, and it’s fairly broad and we hope it’s short-lived. But, there it is and it’s flying fairly close under the radar.”

Barkey said he and his fellow economists are hoping for a better performance in 2018.

“But, I’m hedging my bets because we didn’t make a very good one last year,” he said.

Barkey will appear on KGVO’s Talk Back show on Thursday to discuss the issue with listeners.